Pandemics, apart from posing major health risks, also pose economic and social risks. Pandemics have the potential to disrupt economies, and destabilize national security. The effect of the strong clampdown measures taken by the various governments to arrest the spread of the coronavirus is being felt across the global economy. India recently set up a task force under the Finance Minister to assess the economic impact of the pandemic and suggest economic recovery measures.

Economic challenges posed by COVID-19 pandemic to India: 

• Job losses:
  • There are reports that a third of all restaurants could shut down in the formal sector alone and shed more than 20 lakh jobs, in the coming months.
  • The automotive sector which was already hit by slowing demand is shutting down its factories due to the pandemic. This puts at risk the incomes of around a million people employed in the automotive sector.
  • The unorganized sector, which constitutes a large proportion of the working population in India, would be the most affected, given the loss of livelihood opportunities and lack of social security measures.
• Drop in demand:
  • Job losses lead to lesser disposable income in the hands of the people and subsequently, consumption drops and overall demand collapses.
• Financial sector crisis:
  • When businesses close down, they default on their commercial obligations to their financiers and suppliers. This freezes up credit flow in the economy and also affects related sectors.
• Effect on trade:
  • Trade constitutes a considerable proportion of the Indian economy. The reduced trade due to stringent clampdown measures would affect the growth in the Indian economy.
  • Given the global nature of the crisis, it is not even possible for India to import and export its way to recovery.

Focus areas and necessary actions for an economic recovery package for India:

• Safety net for the most affected sections:
  • About 37% of households depend on casual labour as their major source of income for rural and urban India, and nearly 55% have tenuous regular employment, as per the Periodic Labour Force Survey data for 2017-18.
  • The poor will be the worst affected, including informal workers, workers in the gig economy, or those running small businesses for whom social safety nets are not adequately in place.
• Direct cash transfer:
  • As part of the efforts to provide a safety net for the most affected sections, direct cash transfer option should be considered.
  • The destruction of jobs, incomes and consumption can be addressed through a direct cash transfer of 3,000 a month, for six months. This should be provided exclusively to the most vulnerable section of the society.
  • Considering only the bottom half of all Indian households, the direct cash transfer would cost nearly 2.2-lakh crore and reach 60 crore beneficiaries, covering agricultural labourers, farmers, daily wage earners, informal sector workers and others.
  • This would ensure a sustained income stream for the millions who have lost their incomes and provide them a safety net and a sense of confidence.
  • Various existing schemes of the government can be subsumed under the direct cash transfer scheme, to ensure sufficient financial resources to execute the direct cash transfers.
  • The Pradhan Mantri Kisan Samman Nidhi (PM KISAN) programme with a budget of ?75,000 crore can be subsumed into the direct cash transfer scheme.
• Right to work:
  • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) must be expanded and restructured into a public works programme, to build much-needed hospitals, clinics, rural roads and other infrastructure. This can be achieved by integrating MGNREGA with the Pradhan Mantri Gram Sadak Yojana and the roads and bridges programme.
  • The above three programmes together have a budget of nearly ?1.5 lakh crore. This must be doubled to ?3 lakh crore and serve as a true ‘Right to Work’ scheme for every Indian who needs it.
• Access to food:
  • The Food Corporation of India has sufficient buffers of rice, wheat and unmilled paddy stocks.
  • The buffer stocks should be used to provide 10kg rice and wheat to every Indian family, free of cost, through the Public Distribution System.
  • The combination, of a basic income of 3,000 rupees a month, a right to work and food grains, will provide a secure safety net for the most vulnerable section of the population.

Challenges associated with economic recovery package:

• There is a need for addressing the liquidity squeeze in the financial system
• Service sectors like airlines, tourism, hospitality, entertainment and logistics have been disrupted due to the clampdown in place.
• India’s exports predominantly in textiles and leather which are labour intensive sectors have been disrupted due to the sudden drop in global demand and the restrictions on trade.

India needs an immediate relief package of 5-lakh crore to 6-lakh crore rupees, targeted across all sections of society and sectors of the economy. Given the inevitable economic crisis, it is prudent to take necessary actions immediately. India needs a comprehensive recovery package that will first cushion the economic shock and then help the economy recover.